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Discount Margin (DM)

Discount Margin (DM)

A discount margin (DM) is the average expected return of a floating-rate security (typically a bond) that's earned in addition to the index underlying, or reference rate of, the security. The size of the discount margin depends on the price of the floating- or variable-rate security. The return of floating-rate securities changes over time, so the discount margin is an estimate based on the security's expected pattern between issue and maturity.

Another way to view the discount margin is to think of it as the spread that, when added to the bond's current reference rate, will equate the bond's cash flows to its current price.

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